Debarment Overturned

Lapsing of a FSB Licence

A FSP appealed, in terms of sec 39 of the FAIS Act, against a decision by the FSB, dated 15 December 2014, to withdraw its authorisation as a FSP.

The decision was based on the appellant’s failure to meet fit and proper requirements, particularly in respect of “operational ability” and “financial soundness”.

The appeal was based on two aspects:

  • The appellant was of the opinion that the relevant licence had lapsed before the Registrar’s decision to withdraw it and
  • The Registrar erred in her findings relating to “operational ability”, “financial soundness” and non-compliance with the Act.

From 28 to 30 January 2013, the Registrar conducted an on-site visit to establish whether the FSP was in compliance with the regulatory requirements. This was possibly as a result of the appellant having failed to submit financial statements for the financial years 2013 and 2014. The appellant blamed its auditor but the Appeal Board pointed out that the statutory obligation lies with the FSP.

In the middle of the on-site visit, on 29 January 2013, a director of the appellant wrote to the Registrar, indicating that it had decided to terminate “forthwith” its registration as an FSP with the Registrar, and undertook to fulfil all its legal obligations.

The Appeal Board notes:

“It is abundantly clear that the attempted surrender of the licence was motivated by an attempt by the appellant to evade its existing obligations under the Act, to thwart any action by the Registrar under sec 9 or other provisions of the Act, and to save the appellant’s business reputation. It does not want the licence, but it does not want it withdrawn.”

“The statement in the letter that the appellant would remain responsible under its current FSP obligations for management and transfer of the existing client base until it had effectively discharged its statutory duties and performed its contractual obligations may sound noble but was, from a legal perspective, worthless. The Registrar would not be able to oversee the winding down of the business in the interests of the affected members of the public under the Act because her oversight is limited to those instances where financial services are provided, licenced or otherwise, and not where none were to be rendered.”

The appellant also went into business rescue on 26 February 2013. On 18 April 2013, the appellant’s attorney wrote to the FSB, stating that it was no longer necessary for the Registrar to institute proceedings against the appellant in the light of the letter of 29 January and because of the business rescue order.

The Registrar responded on the same date, declaring that she would not accede to the “lapse request” while the matter was still pending.

“There is nothing on record which explains the inaction on behalf of the Registrar until, it would appear, the auditors of the appellant advised the Independent Regulatory Board for Auditors on 17 June 2014 of a ‘reportable irregularity’ allegedly committed by the appellant.”

Apparently, this concerned the appellant conducting business for which it was not duly registered with the FSB.

The Registrar’s notice of intention to withdraw the appellant’s authorisation, dated 9 October 2014, was addressed to both the appellant and its business rescue practitioner. Only the appellant’s attorney responded, but the information provided did not satisfy the Registrar and the appellant’s authorization was withdrawn on 14 December 2014.

An interesting footnote reads:

“During business rescue proceedings, no legal proceeding, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum, except—(f) proceedings by a regulatory authority in the execution of its duties after written notification to the business rescue practitioner.”

To close a business, a FSP has to comply with para (i) of sec 38 of the Act, which, in simple terms, requires that it has to notify the Registrar of its intent to lapse the licence. The FSB, in return, then has to indicate, in writing, once it is satisfied that the FSP had fulfilled all its obligations and liabilities.

Sec 38A of the Act, dealing with business rescue applications by a licensee, was not yet in operation at the time of the order.

Concerning the fact that the business was not properly licensed, the appellant alleged that the Fund was a stokvel and that a stokvel was exempt from having to register.

The Exemption of Burial Societies and Stokvels was only published on 2 April 2013, and did not apply retroactively.

The Board notes further:

  • The fact that the stokvel is exempted does not mean that its trustee or administrator is exempted.
  • The appellant is not and could not be a stokvel or a member of one because it is not a natural person.

The appeal was dismissed with costs.

Please click here for a copy of the decision.

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